Recent Setbacks for Foreign Investors in Latin America and What They Mean for the Future of Investment Treaty Arbitration in the Region - WAMR 2006 Vol. 17, No. 8

Author(s): 

George K. Foster

Page Count: 

19 pages

Media Description: 

PDF from World Arbitration and Mediation Report (WAMR) 2006 Vol. 17, No. 8

Published: 

August, 2006

Jurisdictions: 

Central America,

South America

Practice Areas: 

Investment Disputes,

International and Transnational Law,

ICSID,

UNCITRAL,

Arbitral Decisions

Author Detail: 

 

George K. Foster is an attorney in the New York office of Dechert, LLP specializing in international arbitration and litigation.

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Description: 

 

Originally from: World Arbitration and Mediation Report (WAMR)

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Recent Setbacks for Foreign Investors in Latin America and What They Mean for

the Future of Investment Treaty Arbitration in the Region

By

George K. Foster *

Despite having entered into a number of investment treaties that give many foreign

investors significant protections against adverse State actions, and despite having felt the

sting of investor claims under these treaties in the past, governments in Latin America

are becoming increasingly bold in their dealings with investors. Venezuela, Bolivia, and

Ecuador, for example, have enacted sweeping new laws that have riled investors in the

oil and gas sector. Meanwhile, despite having built up a strong record of success in

arbitrations filed under investment treaties against Latin American governments,

investors in the region seem increasingly reluctant to pursue claims under these treaties.

In addition, governments are exhibiting a growing reluctance to enter into new

investment accords and some have signaled a desire to undermine accords already in

force. The author explores the reasons behind these developments, identifies lessons to

be drawn from them about the benefits and limitations of investment treaties, and

considers what they mean for the future of investment treaty arbitration in the region.

I. Introduction

The emergence of investment treaties in Latin America had an ameliorative effect

on the investment climate in many countries. Before these treaties appeared, foreign

investors had little protection against adverse measures by host States. When

expropriations occurred or other losses were suffered at the hands of a government,

investors often had little option but to seek redress before local courts—organs of the

very governments that had committed the acts in dispute. Investment treaties changed

that in many contexts. These treaties now offer investors from covered countries a

multitude of protections and empower them to an unprecedented extent in their relations

with host States, typically giving them the right to file damages claims before neutral

international tribunals when they believe their rights have been infringed.

The advent of these treaties coincided with a wave of investment into the region.

During the late 1980s and 1990s, capital flooded into Latin America in a frenzy of

privatizations. Sizeable foreign investments were made in other forms as well, including

private financing of sovereign debt. Initially, most of these investments went relatively

smoothly and the dispute resolution mechanisms established by investment treaties were

invoked only infrequently. But then the Argentine financial crisis hit.

In December 2001, after years of deepening recession, Argentina declared a

moratorium on payment of principal and interest on the external debt of the Republic,

imposed severe limitations on withdrawals from bank accounts, froze the tariffs that

could be charged by local utility companies and service providers, devalued the

Argentine peso, and abolished U.S. dollar-to-peso convertibility.[1] In the aftermath of

that crisis, there was an explosion in the number of investment treaty claims by investors

in the region. Investors filed more than thirty investment treaty arbitrations against